outside of the firm's control (e.g., executive option exercise) or incur negligible adjustment costs (e.g., credit line usage …

"Intuition suggests that firms with higher cash holdings are safer and should have lower credit spreads. Yet … empirically, the correlation between cash and spreads is robustly positive and higher for lower credit ratings. This puzzling … reserves are positively related to credit risk, resulting in a positive correlation between cash and spreads. In contrast …

Intuition suggests that firms with higher cash holdings should be 'safer' and have lower credit spreads. Yet …, spreads are negatively related to the part of cash holdings that is not determined by credit risk factors. Similarly, although …, suggesting that precautionary savings are central to understanding the effects of cash on credit risk …